Some uncertainties exist regarding the natural history and diagnosis of cellular blue nevi. To clarify this situation, 45 cellular blue nevi and 147 blue nevi were studied. The usual history was that of a long-standing sacrococcygeal or gluteal mass in a young woman. Two extracutaneous tumors and six lesions in Negroes, not heretofore reported, are presented. Clinically cellular blue nevi were uniformly misdiagnosed and microscopically confused with malignant melanoma seven times. This resulted in one mastectomy. Prolonged follow-up studies showed only one recurrence and no metastases following conservative surgical treatment. Reports from 267 cellular blue nevi, including 14 which had given “metastases,” and 12 malignant blue nevi are reviewed. Comprehensive criteria are proposed for the differential diagnosis of cellular blue nevus and malignant melanoma. The ultrastructural characteristics of the melanosomes of cellular blue nevus cells are discussed.